WTI Crude Falls on Supply as Brent Spread Widens

West Texas Intermediate crude fell
as rising U.S. inventories overcame optimism that Janet Yellen
will maintain Federal Reserve stimulus efforts. WTI’s discount
to Brent grew to the steepest since March.

WTI slid 12 cents after touching a five-month low in
intraday trading as the Energy Information Administration
reported a 4.6 percent surge in supplies at Cushing, Oklahoma,
the futures’ delivery point. Crude reduced losses as Yellen, the
nominee for Fed chairman, said she will ensure the central
bank’s asset purchases don’t end too soon.

“Rising stockpiles are going to keep the pressure on
WTI,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife
Asset Management in Boston. “The discount to Brent keeps
widening, as a result, and I don’t see it abating anytime
soon.”

WTI for December delivery settled at $93.76 a barrel on the
New York Mercantile Exchange after falling earlier to $92.51,
the least since June 4. The volume of all futures traded was 54
percent above the 100-day average at 4:15 p.m.

Brent for December settlement, which expired today, climbed
$1.42, or 1.3 percent, to end the session at $108.54 a barrel on
the London-based ICE Futures Europe exchange. The more actively
traded January contract rose $1.39 to $108.28. WTI’s discount to
the North Sea grade expanded to $14.78, the most since March 21.

Crude Supplies

“There is a lot of oil hitting the market, and that’s
pushing the market lower,” said Gene McGillian, an analyst and
broker at Tradition Energy in Stamford, Connecticut. “The
domestic market here is oversupplied. U.S. inventories continue
to push up that Brent-WTI spread.”

Cushing inventories at Cushing gained 1.69 million barrels
to 38.2 million last week, the highest level since Aug. 9, the
EIA, the Energy Department’s statistical arm, said. Stockpiles
at the hub have increased 5.58 million barrels in the past five
weeks. Total U.S. supplies jumped 2.64 million barrels last
week, more than triple the 800,000-barrel average estimate by
analysts in a Bloomberg survey.

“The build in Cushing is significant,” said Tom Finlon,
Jupiter, Florida-based director of Energy Analytics Group LLC.
“Our domestic production is still increasing, and,
fundamentally, we are well supplied. That makes it a very
bearish market.”

Shale Production

U.S. crude output climbed to 7.98 million barrels a day
last week, the most since January 1989. Horizontal drilling and
hydraulic fracturing, or fracking, have unlocked supplies in
shale formations in North Dakota, Texas and other states.
Production exceeded U.S. imports in October for the first month
since February 1995, the EIA said yesterday in a monthly report.

“Supply is still overwhelming,” said Bill O’Grady, chief
market strategist at Confluence Investment Management in St.
Louis, which oversees $1.4 billion.

The EIA also reported that refinery utilization rose 1.9
percentage points to 88.7 percent in the week ended Nov. 8, the
biggest increase since June. Four-week average fuel demand
increased to the most since 2011. Gasoline supplies dropped to
209.2 million barrels, the lowest level in almost a year.

“We’ve got a lot of refinery demand,” said Stephen Schork, president of the Schork Group Inc. in Villanova,
Pennsylvania. “You also have a lot of supplies getting to the
market. The market is finding home now around the $94, $95
level.”

Yellen Comments

Yellen’s testimony comes at a critical moment for monetary
policy. The Federal Open Market Committee she is poised to lead
is considering whether to begin slowing its $85 billion monthly
bond-purchase program, which is pushing the Fed’s assets toward
a record $4 trillion.

“It’s important not to remove support, especially when the
recovery is fragile and the tools available to monetary policy,
should the economy falter, are limited, given that short-term
interest rates are at zero,” Yellen said in response to a
question during testimony today to the Senate Banking Committee
in Washington.

“The Fed is not going to end stimulus soon,” said Phil Flynn, senior market analyst at the Price Futures Group in
Chicago. “Refinery runs are turning up quickly.”

Iran Negotiations

Crude also pared losses as President Barack Obama said it’s
not realistic to resolve all issues related to Iran at once and
that sanctions against the Persian Gulf country can always be
ramped up. Iran and six world powers ended a meeting Nov. 9
without coming to an agreement on the nation’s nuclear program.

Iran was the sixth-largest producer in OPEC last month with
2.6 million barrels a day of output, according to a Bloomberg
survey. That’s down 565,000 barrels from June 2012, when it was
ranked second. The U.S. and the European Union tightened
sanctions on Iran in July 2012 to curb its atomic activities.

Electronic trading volume on the Nymex was 840,996
contracts as of 4:16 p.m. It totaled 777,883 contracts
yesterday, 34 percent above the three-month average. Open
interest was 1.71 million contracts, the lowest level since
March 27.